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weaknesses in the current rules to ensure an
effective and appropriate means test treatment
for all retirement income streams into the future.
The paper suggests changes are needed because
it is claimed that such products receive more
favourable means test treatment than account
based income streams.
While it is claimed this process of review
will provide certainty for industry, in effect it
puts the future offering of particular types of
current retirement products under a cloud. It
also generates uncertainty for current holders of
certain retirement income products.
In addition, an inappropriate approach to the
means testing of both traditional and innovative
retirement income products would put at risk the
viability of government plans to have supportive
rule changes for retirement income streams in
place by 1 July 2017.
There is a separate Treasury consultation
process underway in regard to rules for ‘CIPRs’,
or ‘MyRetirement products’ – as now seems to
be the preferred term. Fortunately, a suggestion
by one group that this new class of products be
called ‘SLIPPeRS’ did not get up, as the image of
a dressing gown and slippers is not altogether a
progressive image of retirees.
The DSS discussion paper suggests the current
assets test assessment of lifetime income streams
(lifetime annuities) is highly concessional beyond
life expectancy. However, a major limitation
of the comparison is the assumed investment
earnings rate for an account based income stream
–
a steady 6.6 per cent a year, compared to an
implicit rate of investment return for annuities of
less than 3 per cent a year. The comparisons also
assume very different patterns of drawdown.
The paper also confuses the average treatment
of holders of lifetime income streams with the
outcome for certain (but not all) outliers in terms
of payments received. The paper adopts what is,
in effect, a “heads I win, tails you lose approach”.
For males aged 65, only 4 per cent will reach
age 98, while for females the figure is 8 per cent.
On the other hand, for those currently aged
65, some 6 per cent of males and 4 per cent of
females can be expected to have died by age 70.
The DSS paper focuses on those who live long
and ignores the large proportion who do not.
Getting the asset and income testing of
longevity products right will be crucial for them
to be offered and then purchased in the market.
ASFA is working with its members to assist the
DSS to do this. Product innovation is not an
easy task and hopefully regulatory settings will
support, rather than hinder, innovation.
Superfunds February 2017